Flat tax for all? Italy announces plan to overhaul tax system
The Italian government on Thursday night approved changes to the tax system as it moves ahead with plans for a ‘flat tax’ for all employees by 2027.
Italian Prime Minister Giorgia Meloni's cabinet on Thursday night announced it had formally approved long-discussed plans to overhaul the tax system, though few details were immediately confirmed.
The reforms will "structurally revolutionise the Italian tax system", which has been in place in its current form since the 1970s, the government said in a statement.
KEY POINTS: The tax changes in Italy to know about in 2023
The initial plans will come into effect over two years, the government said, and will initially reduce the number of income tax (Irpef) brackets from four to three, with the ultimate goal of a single tax rate for everyone by 2027 - when the current government’s term in office is set to end.
The so-called flat tax was one of the flagship promises made by Meloni's far-right Brothers of Italy party and its coalition partners in September's general elections.
The tax reform aims to "reduce the tax burden, create a relationship of trust between the tax authorities and taxpayers, and encourage growth and employment according to the principle of 'the more you hire, the less tax you pay'", Meloni said in a tweet on Thursday following the budget approval.
READ ALSO: Who will pay less income tax under Italy’s planned reforms?
The government’s first budget at the end of 2022 extended an existing ‘flat tax’ rate of 15 percent for self-employed workers from those earning up to 60,000 euros a year up to a maximum of 85,000.
Under the latest reforms, the lowest income tax rate for employees is expected to remain unchanged at 23 percent (for those earning 15,000 euros a year or less).
The reforms are expected to set the three bands at 23 percent, 33 percent and 43 percent initially, and government officials have said that a more costly option under consideration would lower the second band to 27 percent.
Al via l'iter che darà vita a una rivoluzione fiscale che l'Italia attende da 50 anni. Una riforma che mira a ridurre pressione fiscale, creare rapporto di fiducia tra Fisco e contribuenti, incentivare crescita e occupazione secondo il principio del "più assumi, meno tasse paghi" pic.twitter.com/YZVQvbVDnS
— Giorgia Meloni (@GiorgiaMeloni) March 16, 2023
No further details were immediately given on Thursday, and the draft outline approved by Italy’s cabinet still needs the green light from parliament and then implementation by the finance ministry.
Trade unions heavily criticised the plan, which they said went "against workers", and others questioned how the heavily indebted Italian state can pay for it all.
"We do not agree either with the reduction in tax rates, which favours the rich, or a flat tax, which is against the idea of progressive" taxation, said Maurizio Landini, general secretary of the Cgil union.
Meloni's government also plans to cut corporation tax from the current rate of 24 percent to 15 for companies that create jobs and make investments in “innovation”.
Carlo Bonomi, head of the main business organisation Confindustria, said on Monday he was waiting to see the details but said the reform was "going in the right direction".
Italian Prime Minister Giorgia Meloni and Economy Minister Giancarlo Giorgetti. (Photo by Filippo MONTEFORTE / AFP)
The government had also discussed lowering tax on essential household goods under the reforms, but no further updates came on Thursday.
The government said it plans to close tax loopholes and slash many of the existing 600 possible tax deductions as well as state-funded tax ‘bonuses’ to fund the reforms, which have not yet been costed.
In its post-pandemic recovery plan, Italy pledged to crack down on tax evasion and close the so-called tax gap - the difference between potential tax revenues and the amount actually raised - in order to recoup around 7-8 billion euros more in 2024 compared with 2019.
Italy’s chronic problem with tax evasion costs the state some 90 billion euros a year, according to the most recent finance ministry data.
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Italian Prime Minister Giorgia Meloni's cabinet on Thursday night announced it had formally approved long-discussed plans to overhaul the tax system, though few details were immediately confirmed.
The reforms will "structurally revolutionise the Italian tax system", which has been in place in its current form since the 1970s, the government said in a statement.
KEY POINTS: The tax changes in Italy to know about in 2023
The initial plans will come into effect over two years, the government said, and will initially reduce the number of income tax (Irpef) brackets from four to three, with the ultimate goal of a single tax rate for everyone by 2027 - when the current government’s term in office is set to end.
The so-called flat tax was one of the flagship promises made by Meloni's far-right Brothers of Italy party and its coalition partners in September's general elections.
The tax reform aims to "reduce the tax burden, create a relationship of trust between the tax authorities and taxpayers, and encourage growth and employment according to the principle of 'the more you hire, the less tax you pay'", Meloni said in a tweet on Thursday following the budget approval.
READ ALSO: Who will pay less income tax under Italy’s planned reforms?
The government’s first budget at the end of 2022 extended an existing ‘flat tax’ rate of 15 percent for self-employed workers from those earning up to 60,000 euros a year up to a maximum of 85,000.
Under the latest reforms, the lowest income tax rate for employees is expected to remain unchanged at 23 percent (for those earning 15,000 euros a year or less).
The reforms are expected to set the three bands at 23 percent, 33 percent and 43 percent initially, and government officials have said that a more costly option under consideration would lower the second band to 27 percent.
Al via l'iter che darà vita a una rivoluzione fiscale che l'Italia attende da 50 anni. Una riforma che mira a ridurre pressione fiscale, creare rapporto di fiducia tra Fisco e contribuenti, incentivare crescita e occupazione secondo il principio del "più assumi, meno tasse paghi" pic.twitter.com/YZVQvbVDnS
— Giorgia Meloni (@GiorgiaMeloni) March 16, 2023
No further details were immediately given on Thursday, and the draft outline approved by Italy’s cabinet still needs the green light from parliament and then implementation by the finance ministry.
Trade unions heavily criticised the plan, which they said went "against workers", and others questioned how the heavily indebted Italian state can pay for it all.
"We do not agree either with the reduction in tax rates, which favours the rich, or a flat tax, which is against the idea of progressive" taxation, said Maurizio Landini, general secretary of the Cgil union.
Meloni's government also plans to cut corporation tax from the current rate of 24 percent to 15 for companies that create jobs and make investments in “innovation”.
Carlo Bonomi, head of the main business organisation Confindustria, said on Monday he was waiting to see the details but said the reform was "going in the right direction".
The government had also discussed lowering tax on essential household goods under the reforms, but no further updates came on Thursday.
The government said it plans to close tax loopholes and slash many of the existing 600 possible tax deductions as well as state-funded tax ‘bonuses’ to fund the reforms, which have not yet been costed.
In its post-pandemic recovery plan, Italy pledged to crack down on tax evasion and close the so-called tax gap - the difference between potential tax revenues and the amount actually raised - in order to recoup around 7-8 billion euros more in 2024 compared with 2019.
Italy’s chronic problem with tax evasion costs the state some 90 billion euros a year, according to the most recent finance ministry data.
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